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Asymmetric Information, Tax Evasion and Alternative Instruments of Government Revenue

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  • Rangan Gupta

Abstract

Using a pure-exchange overlapping generations model, characterized with tax evasion and information asymmetry between the government (the social planner) and the financial intermediaries, the author discusses the optimal tax and seigniorage plans, derived from the welfare maximizing objective of the social planner. It is observed that irrespective of whether the economy is characterized by tax evasion or asymmetric information, a benevolent social planner maximizing welfare and simultaneously financing the budget constraint, should optimally rely on explicit, rather than implicit taxation.

Suggested Citation

  • Rangan Gupta, 2006. "Asymmetric Information, Tax Evasion and Alternative Instruments of Government Revenue," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(1), pages 75-89, February.
  • Handle: RePEc:icf:icfjmo:v:04:y:2006:i:1:p:75-89
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    References listed on IDEAS

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    1. Friedrich Schneider & Robert Klinglmair, 2004. "Shadow economies around the world: what do we know?," Economics working papers 2004-03, Department of Economics, Johannes Kepler University Linz, Austria.
    2. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    3. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-963, September.
    4. Gray, Jo Anna & Wu, Ying, 1995. "On equilibrium credit rationing and interest rates," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 405-420.
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    Cited by:

    1. Cerqueti, Roy & Coppier, Raffaella, 2011. "Economic growth, corruption and tax evasion," Economic Modelling, Elsevier, vol. 28(1-2), pages 489-500, January.
    2. Gupta, Rangan, 2008. "Tax evasion and financial repression," Journal of Economics and Business, Elsevier, vol. 60(6), pages 517-535.

    More about this item

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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